Gold focuses on U.S. data for direction

The U.S. Comex gold futures (COMEX:GCZ13) fell 2.43% on Thursday to $1,330.30, the largest one-day percentage drop since July 5. The gold futures have plunged 4.05% this week after dropping 0.69% during the previous week. The Dollar Index (NYBOT:DXZ13) fell 0.41% in the past two days to 81.489 on Thursday after falling 0.8% last week. The S&P 500 Index (CME:SPU13)and the Euro Stoxx Index have risen 1.71% and 2.09% week-to-Thursday, following a surge last week. The U.S. 10-year Treasury bond (CBOT:ZBU13) yield retreated from the 3% level reached on Sept. 6 to 2.911% on Thursday.

Fed Tapering, U.S. Data and the Fed Appointment in Focus

The initial jobless claims in the U.S. for the week ending Sept. 7 fell to 292,000 from 323,000 in the week prior, compared to an expectation of 330,000. The four-week moving average of 321,250 was the lowest level in almost four years. The percentage of small business owners wanting to hire has also jumped to the highest level since 2007, reflecting further improvement in the labor market. The uncertainties of the Fed's QE tapering in the FOMC meeting next week have increased the volatilities in the bond, equity, currency and gold markets. The U.S. Congress will soon have to vote on a funding bill to avert a government shutdown. In the next few weeks, President Obama will nominate the new Fed chairman; a global poll by Bloomberg reveals that Larry Summers is expected to keep a tighter monetary policy if elected and has a higher chance of winning compared to his opponent, Janet Yellen.

Second Half Gold Outlook

The London-based GFMS forecasts a lower gold demand at 2,237 metric tons in the second half of 2013 compared to 2,533 metric tons in the second half of 2012 due to the expected lower jewelry and bar purchases as well as reduced buying by the central banks. The GFMS expects the gold prices, which have declined 21% year-to-date, to move higher towards $1,500 from now until early 2014 and then decline afterwards. GFMS predicts that China's gold purchases in 2013 are expected to exceed those of India by close to 100 tonnes.

What to Watch

The market will focus on the U.S. August industrial production on Sept. 16 and the U.S. August inflation data on Sept. 17 as well as scrutinize any new policy announcements in the FOMC meeting and the Fed's press conference on Sept. 18. The market will likely watch for any renewed tensions from Syria as well as the U.S. budget negotiations.